Confused about Amazon's tax system? You're not alone—many people are. Because e-commerce tax is a new (and complex) system, it takes time to understand. However, we don't think that's the root of all the confusion.
What do you do when a concept is unfamiliar to you? You seek reliable sources and professional help to understand it better. Most importantly, you ask questions. When you ask the wrong ones, however, the confusion only gets worse.
It might even cause financial problems for your business. So this time, let's clear things up and ask smart questions to financial experts. Let's begin with something frequently asked: does Amazon charge tax?
Our answer is no, but there's more you need to know.
Clearing Up Amazon Tax Misconceptions: Does Amazon Charge Sales Tax?
There are several misconceptions about Amazon and taxes. People would ask, "does Amazon charge tax?" then look for a simple answer. But for a business owner who wants to manage and comply with taxes properly, this isn't enough.
You need simple answers and further explanations. It is the only way to know where you stand, act on your tax obligations as a remote seller, and avoid financial troubles. Let's discuss the truth about Amazon and taxes.
Can Amazon Charge Taxes?
No. Only government authorities can impose taxes. What Amazon can do is facilitate them through an online system. They calculate, collect, and remit sales taxes at checkout, complete with invoices and other procedures.
You don't have to work on anything, but only on that part. Amazon won't report taxes on your behalf to the tax authorities.
How Does Amazon Calculate the Tax Rate?
Now that we know Amazon only collects sales taxes, another question comes to mind. How does Amazon assess and calculate the right amount of tax?
Amazon is legally required to calculate, collect, and remit taxes depending on the following factors.
- The shipment's destination
- State laws on internet sales tax
- City or municipal sales taxes
- Seller's identity
- Type of ordered item
- Time of order placement
- Time of authorization on credit card charge
These might seem few and simple, but they're more complicated than you think. In fact, it's a challenging task for Amazon; like you, they also have to comply with various local sales tax jurisdictions. This can be tricky and costly when you make even the tiniest mistake.
5 Smart Tax Questions to Ask Your Bookkeeper or Accountant
Aside from understanding the fundamentals of Amazon's tax structure, you must know what questions to ask your financial expert. That way, you can build long-term strategies for your business.
Here are five guide questions to explore with a bookkeeper, accountant, or another financial expert you're working with.
1) What are My Tax Obligations as a Seller?
This is the first and most significant question you should ask. Here are three things you must know when working on Amazon taxes:
- Where your business has a sales tax nexus
- Who does the sales tax collection
- How the process works
Neither Amazon nor other authorities will do these for you. Otherwise, you'll suffer costly penalties, charges, and interests. So be sure to check in with a bookkeeper or accountant about your tax duties to avoid these troubles.
2) What Tools Can Help Me Manage Amazon Taxes?
Tax management is one of the most challenging facets of running a business. It's time-consuming and prone to errors. If you want to avoid such costly mistakes, ask your financial expert to recommend efficient tools for tax management.
Usually, they recommend accounting software with an automated system and customizable features like Quickbooks. It significantly makes the work easier, faster, and less susceptible to error. Furthermore, you can integrate it with platforms like Amazon for easier tax management.
3) How Does Amazon Compare to Another Online Marketplace?
You can't ignore Amazon when running an e-commerce business. After all, millions of people worldwide use it to buy a wide range of products. So skipping it would mean giving away a potentially huge customer base.
Still, it wouldn't hurt to ask about its competitors and see what makes it better (or not) than them. For example, does Amazon have the edge over Shopify regarding taxation? Which platform offers a better tax system? Your bookkeeper or accountant will know about this and give proper advice.
4) Does Amazon Have Tax-Related Programs?
Who doesn't want to get a tax exemption? Don't forget to ask about available options you can take advantage of to lessen your tax burden. For instance, Amazon has a program called the Amazon Tax Exemption Program, or ATEP for short.
Buyers and sellers have to enroll in the ATEP to acquire exemptions. Additionally, you don't have to modify anything because Amazon does all the work for you. They even provide certificates for reference. This is a wonderful opportunity for you to save, so make sure to ask about it!
5) Where Else Can I Improve and Find Tax-Related Opportunities?
Lastly, always look at the big picture. Amazon isn't the only place where you can find tax-related opportunities, strategies, and rooms for improvement. Some aspects of your business need sufficient attention and action to help your business become tax-efficient.
You can talk to your financial expert about these and ask for advice. They might suggest things like hiring a remote team, opening a new office in states with lower tax rates, improving cash flow, conducting forecasts, or estimating payments to the IRS.
Unloop Can Help You Become a Proactive Amazon Seller With the Right Questions
It's easy to get confused about anything e-commerce, especially if you throw in the subject of taxes. But like most technical business aspects, it's not impossible to master. So how do you do that? First, you must ask relevant and specific questions.
Do online marketplaces impose taxes? How much tax does Amazon charge? You can start with these basic questions, but you should also explore the ones we discussed. That way, you can leverage all tax opportunities and stay compliant.
If you're still feeling overwhelmed, we recommend partnering with a reliable and knowledgeable expert like Unloop! We help US and Canadian e-commerce and inventory businesses keep their Amazon sales tax in check. These include tax nexus, registration, monitoring, shopping cart setup, and compliance.
If you want to know more about what we offer, arrange a call with us today and let's talk taxes!